OTTAWA – The Harper government says it will end seven years of deficits with a $3.7-billion surplus in 2015, just in time for the Conservatives to introduce tax cuts in advance of their re-election campaign.

The new projection – almost $3 billion better than the March budget forecast – was announced by Finance Minister Jim Flaherty in his fall economic update, which also included provisions for asset sales and savings from the recently announced freeze in departmental spending.

“We’re on track to get back to balance in 2015, without raising taxes or cutting investments in health care and social service transfers, as promised,” Flaherty said in a statement.

He was delivering the economic update – a mid-year report card on the economy and the government books – at a speech before the Edmonton Chamber of Commerce.

The update takes a cautious approach to the economic reality facing Canada and how it will affect the government’s books.

Highlights of economic update– Budget surplus of $3.7 billion in 2015-16 – $3-billion less than projected in March – and $5 billion in 2016-17.- Federal deficit to fall to $17.9 billion for 2013-14, compared with $18.9 billion the previous year and $55.6 billion in 2009-10.- Government expects widespread spring flooding in Alberta to cost $2.8 billion in 2013-14, on top of $60 million in assistance for rail disaster in Lac-Megantic, Que.- Sale of 30 million shares in General Motors to net $700 million for 2013-14; other expected asset sales include B.C. bulk coal terminal Ridley Terminals, the rest of the government’s GM shares and the Dominion Coal Blocks lands in B.C., generating $500 million in 2014-15 and $1.5 billion in 2015-16.- Real GDP growth to fall to 2.4 per cent in 2014, down from 2.5 per cent in federal budget.- Nominal GDP growth of three per cent in 2013, down from 3.3 per cent, and 4.2 per cent in 2014, down from 4.7 per cent.- Spending freeze in federal government departments to save $1.65 billion over 2014-15 and 2015-16.

In fact, Flaherty has built in a $3-billion risk adjustment to his baseline calculations, meaning unless the global or Canadian economies perform much worse going forward, the government could find itself sitting on a $6.7-billion surplus in an election year.

Extended video: Jim Flaherty’s budget comments

In the 2011 campaign, Prime Minister Stephen Harper announced he was prepared to offer Canadian couples with children under 18 the possibility of splitting their income to reduce taxes. By some calculations, that would deprive Ottawa of about $2.7 billion in revenues.

Also, he pledged several other boutique tax cuts, as well as doubling the $5,000 a year limit on tax-free savings accounts, which would shave several hundred million more from tax revenues.

The promises, however, were contingent on having a balanced budget.

In the current fiscal year, Flaherty says he expects the deficit to be $17.9 billion – $1 billion below the budgeted number – as a result of better-than-expected savings from cost-cutting measures and lower interest charges that more than makes up for lower revenues from slow economic growth.

The deficit will fall to $5.5 billion in 2014-15, the government says, as a revived economy starts producing more tax revenues.

Flaherty said the government also expects to realize about $1.65 billion cumulative in savings from the throne speech pledge to freeze internal departmental budgets, which will occur in 2014-15 and 2015-16 fiscal years.

The government said another $2 billion in revenues will be realized from the sale of its remaining stake in General Motors, as well as the sale of the Ridley coal terminal in British Columbia, and the Dominion Coal Blocks, two Crown lands also in B.C., which it expects to complete in two years.

At current prices, the sale of GM shares alone could net Ottawa $2.6 billion, but officials said they were being ultra-cautious in booking profits.

On the cost side, the government is also booking over $2.8 billion costs for disaster relief due to June’s devastating flooding in Alberta, on top of the $60 million already committed for the Lac-Megantic train derailment in Quebec.